How We're Doing: The implications of Vermont's shrinking labor force

Jan. 24, 2013

DT

Written by

Art Woolf

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If you are working, or if you’re out of work but are looking for work, you are one of the 358,000 people considered to be part of Vermont’s labor force. As the accompanying graph shows, the state’s labor force grew steadily through the 1990s and, after a small decline during the recession at the turn of the millennium, continued to grow through the first seven years of the 2000s.

But this steady labor force growth has ended. The state’s labor force hasn’t grown in the past five years, and it looks like it actually fell in 2012. One reason for the decline may be that some people have dropped out of the labor force. Discouraged by dismal job prospects, they’re waiting for the economy to improve. When it does, they’ll start looking for work and therefore become part of the labor force.

But there’s ample evidence that this may not be the only, or even the most important, reason for the labor force decline. Instead, some people may have left the labor force permanently, and even when economic conditions improve, they won’t be returning to the labor market. Some of these people exiting the labor market may be in their late 50s or 60s and have decided that early retirement is their best option. The Social Security Administration reports a very large increase in the number of Vermonters receiving Social Security retirement checks in Vermont.

Vermonters not yet eligible for Social Security retirement benefits have opted for disability payments. The number of Americans, and Vermonters, receiving disability payments has grown dramatically in the recent past, despite better health and safer and less physically onerous jobs. The number of retired workers on Social Security in Vermont increased by 15 percent over the past four years and the number on Social Security disability grew by 23 percent.

On top of this, there has been a decline in the number of young working age people in Vermont, adding a demographic element to the economic reasons for a stagnant or shrinking labor force.

Whatever the reasons, and there are probably several, the lack of labor force growth means that businesses and nonprofits will have to compete harder to find qualified workers at all skill levels. Although that is good news for workers, it’s a more troubling long-term problem for the economy. If businesses find it difficult, and increasingly expensive, to find qualified workers here in Vermont, they’re apt to look elsewhere to expand or locate their operations. In the longer term, that’s not good news for workers, or the state as a whole.

Art Woolf is associate professor of economics at University of Vermont and editor of The Vermont Economy Newsletter.